Rand in tailspin amidst emerging market sell-off

The Rand has fallen to a six-month low of 13.80 to the Dollar, taking its drop this quarter to 13.9 per cent.

The brief upturn in investor sentiment in the first quarter, when Cyril Ramaphosa took over the presidency from Jacob Zuma, ushered in a new sentiment of hope, but growth has remained weak. This most recent slump has largely been a result of fears over a so-called trade war between the US and China. This after the White House unveiled a list of nearly 1,000 Chinese industrial products it intends to target with tariffs of 25% from 6 July 2018, drawing threats of retaliation from China.

The Rand was far from the only EM currency under pressure in Monday trading, with the Brazilian Real, Turkish Lira and Russian Ruble all taking a hiding.

“The ZAR has not yet weakened to the same extent as some of its high-yield and commodity-based peers, but large-scale portfolio outflows are taking place at a time when SA’s current account deficit is starting to widen again. A firmer USD environment and SA’s persistently sluggish economic recovery have also prompted us to become more bearish about the ZAR,” says Peter Worthington, a senior economist at ABSA Bank, a part of Barclays Africa Group.

The week ahead in South Africa sees the economic data calendar return to life with a series of key releases scheduled for the days ahead. Out on Wednesday morning, the figures for May are predicted to show growth for the year-on-year reading but no major change for core annual inflation. Another factor that risks causing Rand losses this week is Thursday’s current account reading for Q1 2018. Consensus is for the deficit to have risen to -ZAR177 billion during the first three months of the year, nearly doubling the ZAR-100 billion black hole seen in the fourth quarter of 2017. Currency markets will be sensitive to both positive and negative surprises in the numbers.

Day	What’s happening?	Why it’s important
Wednesday 20 June	Consumer Price Index	The purchase power of the Rand is dragged down by inflation. The CPI is a key indicator to measure inflation and changes in purchasing trends. A high reading is seen as positive (or bullish) for the Rand, while a low reading is seen as negative (or bearish).
Thursday 21 June	Current Account Data	The current account includes all the transactions (other than those in financial items) that involve economic values and occur between resident and non-resident entities.  Generally speaking, a positive reading is seen as bullish for the Rand, while a negative reading is seen as bearish.

 

– Calvin Matsaure